Gas prices in Europe are breaking record after record. The UK is facing supply shortages reminiscent of the late 1970s winter of discontent. Chinese factories are shutting down because of power shortages, and the outlook is grim. In fact, it may be the first crisis of many.
When gas prices in Europe started rising faster and faster last month as the continent prepared for winter and found out it was not the only one, gas suddenly became important. That's after being excluded from the list of low-carbon energy sources and after the EU's green transition chief Frans Timmermans said gas had no place in the transition. It now appears Timmermans and his fellow Brussels bureaucrats could not have been more wrong.
For years Europe has been retiring coal plants and building solar and wind farms as it strived to become the greenest continent on earth and lead the energy transition on the premise that emissions of carbon dioxide are the planet's single biggest problem because they lead to unfavorable climate changes. This has been coupled with investment declines in oil and gas production, as this only made sense. Now, the EU has got the first bill for its low-carbon feast.
"It could get very ugly unless we act quickly to try to fill every inch of storage," Marco Alvera, chief executive of Italian energy infrastructure company Snam, told Bloomberg last month. "You can survive a week without electricity, but you can't survive without gas."
This last sentence is important. The green transition plans of the EU—and all other countries with a green agenda, really—tend to assume that the only way to a cleaner energy future is through total electrification. And they are saying it will be cheap and easy, or, in the now immortalized words of UK's Prime Minister Boris Johnson quoting the opposite of Kermit the Frog, "It is easy to be green." Johnson also said it was possible for the UK to go 100-percent green (plus nuclear) by 2035.
China's ruling elite must have also thought that going green would be easy as they imposed stricter emission rules on industrial producers and utilities. And then had to issue a "Whatever it takes" order to make sure utilities would have enough fossil fuel supplies for the winter to avoid outages. The order, it appears, was too late, and factories are already shutting down as coal supply remains tight and will remain tight for the observable future.
Years of underinvestment as coal turned into humankind's greatest mistake are now bearing fruit, and this fruit is a polluting one. But it was bound to happen. Once you demonize a commodity that has played an essential role in the progress of civilization for more than a century and start pouring billions into ensuring this demonization leads to the demise of that commodity, success is only a matter of time. But in the meantime, it might be a good idea to ensure you have an alternative—and this is the really important part—that can perform on par with the demonized commodity.
The energy crunch has shown in what some would say is an unequivocal way that wind and solar power do not perform on par with coal, oil, or gas. They can't. They depend on the weather. But wind and solar were what the EU, China, and the United States rushed into to replace fossil fuels, and now we are all paying the first installment on that rushed renewables purchase.
"It is a cautionary message about how complex the energy transition is going to be," Daniel Yergin told Bloomberg this week, referring to the energy crunch. Bloomberg, by the way, has been at the forefront of the energy transition coverage, producing a lot of praise for increasingly cheap wind and solar. Apparently, however, they are still not cheap enough or rather, not reliable enough to become cheap enough. But nobody is talking about this.
"It is inaccurate and unfair to explain these high energy prices as a result of clean energy transition policies. This is wrong," said the International Energy Agency's Fatih Birol, echoing a sentiment shared by all green governments. The reason for the sentiment has never been explained, but it might come down to the fact that so much money has been spent on the energy transition already and so much more is slated to be spent, that it would be embarrassing to admit the approach to the transition was sub-optimal.
It is, in fact, entirely accurate and fair to explain the high energy prices as a result of clean energy transition policies. It was these policies that discouraged investment in new oil, gas, and coal production. It was also these policies that led to the shutdowns of coal and nuclear plants that reduced generating capacity that simply cannot be replaced by wind or solar on a MW for MW basis because wind and solar do not generate power continuously. And it is these policies, in Europe, China, North America, and elsewhere that, unless revised to reflect reality a bit better, will condemn billions of people to blackouts, energy shortages, and higher electricity bills.
By Irina Slav For Oilprice.com
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